Saturday, May 15, 2010

Not Just Another Dip For Buying

Rather, I think we are due for a full blown return to the nasty general stock market bear that is far from over. I am talking about potential new lows in the general U.S. and global stock market indices. I am talking about all the efforts to prop up markets failing spectacularly despite printing enough money/debt to make Lord Keynes blush.

I could be wrong. But so could the paperbugs who believe in the "dream team" of packs of ignorant apparatchiks, their academic economists and the central and Wall Street bankstaz who supposedly control everything and won't let the markets go down. The "Goldilocks" scenario and the "it's all contained" propaganda pushed on the investing public via cheerleading TV failed before and it will fail again in my opinion. The signals are all there. The so-called "fat fingers" (joke) are getting ready to make a few more big trades. Now, keep in mind that I never thought it would take this long to get here in the general stock markets and I still have a sore bum from trying to go short the stock markets too early last year. I am no expert trader or prognosticator, though I continue to learn and get better as all speculators are wont to do.

But I do know not to lose the forest thru the trees (this post has some background information that I won't repeat here). The parallels between the Nikkei multi-decade collapse in their stock market bubble in the 1980s and the burst bubble in the NASDAQ from 2000 are still there and they still look set-up for a decent rhyme in my opinion. Here's the NIKKEI over the past 20 years in a weekly log scale linear plot format with some thoughts:

And here's the NASDAQ over the past 15 years thru Friday's close:

I believe the wires have been tripped and the slow-motion explosion has begun (although not very slow motion if you're an investor in the so-called PIIGS stock markets). Pictures here speak of potential carnage to come better than I can express in words. First up, the corporate junk bond price (using the HYG ETF as a proxy) to longer term U.S. government bond price ratio (using the TLT ETF as a proxy) over the past 30 months on a daily plot (HYG:TLT ratio chart):

Next up, the TED spread ($TED) over the past 30 months on a daily plot compared with the S&P 500 ($SPX):

The LIBOR ($LIBOR, green area plot in the background) is rising quickly, indicating large banks are nervous and/or and stressed (30 month daily chart of the $LIBOR and the S&P 500, the latter a black linear plot):

I don't think calm is about to return to the markets, I think panic is going to return to the markets. The collapse in higher monetary aggregate measures for two years straight, the extreme complacency and bullishness of investors over the past few months despite being in the early stages of an economic depression, the recent breakdown of Chinese and European stock markets into full blown bear markets and the end of the typical spring fever that drives hopeful animal spirits all signal the need for an intermediate-term decline in general stock markets to me, not a brief correction or one day melt down. That one day was just a tremor to signal the earthquake dead ahead in my opinion. Get Gold, get short or get out of the way. Just my 2 cents and I am talking my book now that I am short the stock market. I will remain long physical Gold until the Dow to Gold ratio gets to 2 (and we may well go below 1 this cycle).